Miller Corporation has a premium bond making semiannual payments. The bond pays
ID: 2766395 • Letter: M
Question
Miller Corporation has a premium bond making semiannual payments. The bond pays a coupon of 7 percent, has a YTM of 5 percent, and has 13 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond pays a coupon of 5 percent, has a YTM of 7 percent, and also has 13 years to maturity. What is the price of each bond today? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Price of Miller Corporation bond $
Price of Modigliani Company bond $
If interest rates remain unchanged, what do you expect the prices of these bonds to be 1 year from now? In 4 years? In 9 years? In 11 years? In 13 years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Price of bond
Miller Corporation Bond/ Modigliani Company Bond
1 year $ $
4 years $ $
9 years $ $
11 years $ $
13 years $ $
Explanation / Answer
Price of bond = (C*((1-(1/((1+i)^n)))/i))+(m/((1+i)^n)
Where
C=Coupan payment
i=Required yield
m=parvalue
n=no of coupan payment
Miller
Modigilani
Coupan
7%
5%
YTM
5%
7%
Period
13years
13 years
coupan payment
semi annual
semi annual
Today
Miller
1189.506111
(35*((1-(1/((1+0.025)^26)))/0.025))+(1000/((1+0.025)^26))
Modigilani
831.0964774
(25*((1-(1/((1+0.035)^26)))/0.035))+(1000/((1+0.035)^26))
1 year from now
Miller
1178.849858
(35*((1-(1/((1+0.025)^24)))/0.025))+(1000/((1+0.025)^24))
Modigilani
839.416324
(25*((1-(1/((1+0.035)^24)))/0.035))+(1000/((1+0.035)^24))
In 4 years
Miller
1143.533636
(35*((1-(1/((1+0.025)^18)))/0.025))+(1000/((1+0.025)^18))
Modigilani
868.1031827
(25*((1-(1/((1+0.035)^18)))/0.035))+(1000/((1+0.035)^18))
In 9 years
Miller
1071.701372
(35*((1-(1/((1+0.025)^8)))/0.025))+(1000/((1+0.025)^8))
Modigilani
931.2604446
(25*((1-(1/((1+0.035)^8)))/0.035))+(1000/((1+0.035)^8))
In 11 years
Miller
1037.619742
(35*((1-(1/((1+0.025)^4)))/0.025))+(1000/((1+0.025)^4))
Modigilani
963.2692079
(25*((1-(1/((1+0.035)^4)))/0.035))+(1000/((1+0.035)^4))
Miller
Modigilani
Coupan
7%
5%
YTM
5%
7%
Period
13years
13 years
coupan payment
semi annual
semi annual
Today
Miller
1189.506111
(35*((1-(1/((1+0.025)^26)))/0.025))+(1000/((1+0.025)^26))
Modigilani
831.0964774
(25*((1-(1/((1+0.035)^26)))/0.035))+(1000/((1+0.035)^26))
1 year from now
Miller
1178.849858
(35*((1-(1/((1+0.025)^24)))/0.025))+(1000/((1+0.025)^24))
Modigilani
839.416324
(25*((1-(1/((1+0.035)^24)))/0.035))+(1000/((1+0.035)^24))
In 4 years
Miller
1143.533636
(35*((1-(1/((1+0.025)^18)))/0.025))+(1000/((1+0.025)^18))
Modigilani
868.1031827
(25*((1-(1/((1+0.035)^18)))/0.035))+(1000/((1+0.035)^18))
In 9 years
Miller
1071.701372
(35*((1-(1/((1+0.025)^8)))/0.025))+(1000/((1+0.025)^8))
Modigilani
931.2604446
(25*((1-(1/((1+0.035)^8)))/0.035))+(1000/((1+0.035)^8))
In 11 years
Miller
1037.619742
(35*((1-(1/((1+0.025)^4)))/0.025))+(1000/((1+0.025)^4))
Modigilani
963.2692079
(25*((1-(1/((1+0.035)^4)))/0.035))+(1000/((1+0.035)^4))